Trump Marina’s been for sale; that’s no secret. There’s a $75 million offer on the table for it. Financial analyst William Hardie now values the property at $24 million. We can argue about whether that’s a fair assessment–Trump certainly would–but let’s say we’ve got a choice between buying Trump Marina for even $80 million or building a mini-casino for $300 million. Which should we take?

In 2008, Trump Marina had 72 table games and 1,983 slots, with a 78,535 square-foot casino.

The mini-casino would be restricted by law to 20,000 square feet, which I say pencils out to roughly 24 table games and 512 slot machines.

Right off the bat, something should be obvious: for nearly four times the cost of entry, you get one-quarter the slot machines. In theory.

In theory, I guesstimated that these mini-casinos would earn, all things being equal, about $68 million a year.

Back in the real world, Trump Marina earned $203.6 million in 2008, after a long decline (in 2002, it made $283 million in gaming revenue). It is obviously under-performing, and has the potential to do much better business. It’s near two of the biggest and best-performing properties in the city (Borgata and Harrah’s), much better neighbors than the Atlantic City Hilton near Albany Avenue. It has an existing customer and marketing database and needs no additional infrastructure. At the very least, it’s a turnkey business. Of course, you’d have to invest heavily to bring it up to its potential, but how much would it cost to remodel? It took $150 million to transform the Aladdin into Planet Hollywood. P-Ho is about 2.5 times the size of the Marina.

So instead of starting from scratch and investing $300 million in a new facility with one-quarter of the revenue potential, why not just buy Trump Marina and renovate it–really renovate, almost beyond recognition? Even if you put $100 million into it, you’re still saving money, and you’ve got a much bigger, better-situated Hard Rock casino with way more potential upside.

BTW, in the late 1990s Trump’s Castle was almost re-themed as a Hard Rock casino, but for a few reasons that didn’t happen and we got Trump Marina instead. Maybe that’s why I wanted to run the numbers on this one.

Am I missing something, or when you look at it like this does $300 million for a mini-casino seem like a bad deal to you, too?

5 Responses to 'Comparison shopping in AC'

Slogans: You Can’t Win If You Don’t Play The Game. In other words, a mini-casino is better than not having any shearing shed at all. Building the mini-casino and then using it as an asset in a corporate shell game is also profitable. Consider all these fast food chains that are rediscovering the joys and profits of an extremely limited menu with ultra-fast service. Mini-casinos may just skim enough cream to keep the owners very happy.
Economists are always talking about marginal dolalrs… that one more dollar spent on a Maxi-Casino just may not have any return involved at all.

Yes, but you could get into the market for much, much cheaper than $300 million. When you’ve got an independent auditor valuing a 2,000-slot facility at $24 million, why spend $300 million to get one quarter of the profit potential?

Trump Marina’s also got the only working marina in an Atlantic City casino, which has to count for something.

As far as the mini-casino goes, they theoretically might skim enough cream to keep the owners happy, but from an investment standpoint, I just don’t see this making sense.

Assuming you can borrow $300 million to build a casino in a declining market, if you got a loan with an 8% interest rate, that’s $24 million in interest. That’s a generous rate, and you probably won’t do as well.

Assuming that gaming revenue will account for only 77% of total property revenue (the industry average), the hotel casino would generate about $88 million in total revenue a year.

About $10 million goes right out the door in gaming taxes. Another $20 million in comps (the industry average). At least $16 million in wages. Another $30 million in costs and expenses. That’s $76 million in hard costs, approximately, even before factoring in interest and other payments. We haven’t made any provisions for bad debts or further capital expenditures, which are another cost of doing business.

In other words, if someone gave you this casino as a gift, you’d make at best $12 million a year, treading water. But you’ve also got to pay income taxes on that, and there are probably some expenses I’m missing.

Even without factoring interest, that’s only a 4% return on the $300 million investment.

Maybe I’m missing something here. If an investment banker wants to jump in, I’d welcome it. But looking at the publicly-available numbers, this doesn’t make sense to me.

Dave, I saw your post on Pink’s story as well (Dr. Dave, did you see Pinky use your story?). You raise some great points. That is exactly why no one wants to by Resorts International (the individual property) as well. The place barley brakes even operationally (it might be loosing money, but I am not sure) before debt service is even considered. But I pose the question to you and Dr. Dave. The Chelsea as the exception, can a Hard Rock Casino or other boutique casinos in AC generate enough amenity revenue (rooms, booz, clubs etc) to make a meaningful investment beyond what has been highlighted to be the potential of the casino? As a side note, I think Trump Marina would make a much better Hard Rock branded hotel. It would require, as suggested, a significant investment (I think appx. $100 million might do the trick) but would be an instant winner. Right next to Borgata and Harrahs! That would certainly be a fun casino cluster.

Unless they charge way more than the industry average for rooms, I don’t see how it’s possible. If you’ve got 200 rooms, even if your ADR is $500 a night and you have all cash customers, you’re only making $36.5 million from rooms for the year, assuming 100% occupancy.

Win the real world, with 800 rooms, the AC Hilton made $20.3 million from rooms in 2008. So if that’s your baseline (they are in the same neighborhood), your talking $5 million in annual room revenue–an ADR of $68 with 100% occupancy.

Thansks Dave. Pinky mentioned that Jim Allen was going to call into his show at some point. I am really interested in what he has to say. Frankly I just want someone to breath some life into that town again. Today’s news about Morgan Stanley fleeing Revel is another shore sign that things will not be getting better any time soon. Unfortunately.